Oct. 16 (Bloomberg) -- OAO AK Bars, a Russian bank rated
four levels below investment grade, is selling ruble bonds for
the first time in four years as lenders in the oil-rich
Tatarstan region seek to lure investors chasing higher yields.

AK Bars plans to issue 5 billion rubles ($161 million) of
three-year notes on Oct. 18, it said in an Oct. 11 filing. The
yield on the lender’s 10-year dollar bonds sold in July sank
five basis points to a record-low 6.72 percent yesterday,
narrowing the premium investors demand to hold them over
emerging-market peers to 211 basis points from an Oct. 1 record
of 407 basis points, JPMorgan Chase & Co. indexes show.

Russian companies are rushing to sell debt, spurred by the
country’s main export oil blend trading above $100 since July
and U.S. and European bond-buying programs. OAO Tatfondbank, a
Tatar bank that’s two levels below AK Bars at B3 by Moody’s
Investors Service, finished taking bids for 2 billion rubles of
bonds last week.

“The ruble market is experiencing a true awakening,”
Maxim Korovin, a Moscow-based analyst at VTB Capital, said by
phone on Oct. 11. “We’re seeing that many issuers with lower
credit ratings are seizing their chance.”

AK Bars plans to use proceeds to develop loans to major
corporate customers and attract new clients, Aidar
Mukhametzyanov, director of investment business, said in an e-mailed response to questions yesterday. The bank is returning to
ruble bonds because of the “good market situation,” he said.

Tatfondbank, which set the coupon at 13 percent on 2
billion rubles of three-year bonds, plans to direct funds toward
its strategy up to 2013, particularly increasing lending to
small and medium-sized business, the bank’s press service said
in e-mailed comments.

Oil Price

Urals crude, Russia’s chief export earner, has averaged
$110.76 a barrel this year compared with $109.47 last year,
according to data compiled by Bloomberg. OAO Tatneft, the
dominant oil company in the Tatar region of 3.79 million people,
increased output 0.5 percent in August to 530,000 barrels a day,
data from the Russian Energy Ministry’s CDU-TEK unit show.

The ruble rose 0.7 percent to 30.8666 per dollar by 4:47
p.m. in Moscow. Non-deliverable forwards, which provide a guide
to expectations of currency movements, showed the ruble at
31.3327 per dollar in three months.

Bank Bonds

OAO Gazprombank, Russia’s third-largest lender, started
accepting bids for 10 billion rubles of bonds yesterday after
selling 30 billion rubles of three-year notes last week. The
local units of HSBC Holdings Plc and Societe Generale SA are
also among lenders considering issuing in the Russian currency.

While Tatfondbank successfully closed the book on bids for
its notes, the yield is the highest on record, according to data
compiled by Bloomberg. Most demand is for higher-rated banks,
according to Alexey Korolenko, who helps manage 108 billion
rubles of assets including Tatfondbank bonds at Uralsib
Financial Corp. in Moscow.

“We’re seeing a lot of ruble issuance,” he said by phone
on Oct. 12. “In such a positive market, we’re more interested
in higher-quality companies. Such high-yield issuances bring a
high day-to-day return but the upside in price is barely
visible.”

Russia is rated Baa1 by Moody’s, the third-lowest
investment-grade ranking. Russia’s sovereign dollar bond due in
April 2020 climbed, lowering the yield two basis points to 2.530
percent. The yield on domestically traded notes due in June 2017
fell seven basis points to 7.08 percent. The yield on Russia’s
international ruble bond due in March 2018 was little changed at
6.403 percent.

Cost Protection

The cost of protecting Russian debt against non-payment for
five years using credit-default swaps fell six basis points to
134 basis points, according to data compiled by Bloomberg. The
swaps cost 19 basis points less than contracts for Turkey, which
is rated three levels lower at Ba1 by Moody’s. The contracts pay
the buyer face value in exchange for the underlying securities
or the cash equivalent should a government or company fail to
adhere to its debt agreements.

The extra yield investors demand to hold Russian debt
rather than U.S. Treasuries slid six basis points to 177,
according to JPMorgan EMBI Global indexes. The difference
compares with 150 for debt of similarly-rated Mexico and 142 for
Brazil, which is rated one step lower at Baa2 by Moody’s.

Banks will be the main buyers of the debt, according to
Konstantin Artemov, who helps oversee about $180 million in
Russian bonds at Raiffeisen Capital in Moscow. Issuers are
taking the opportunity to sell while the window for ruble bond
issuance is open, he said.

“The mood in the markets is very good right now, we’re
seeing a boom in ruble issuance,” he said by phone on Oct. 12.
“Right now is a great time to issue.”